Staying Competitive, the Google Ventures Way

Access to the top deals and entrepreneurs in Silicon Valley has never been more competitive, according to Google Ventures General Partner David Krane–even for a corporate venture arm with a global brand, a lot of resources to throw at portfolio companies and $300 million per year to invest.

David Krane is one of eight investment partners for Google Inc.’s venture investment arm.

Speaking to an audience of corporate venture investors at a conference in Newport Beach, Calif., Krane talked about how Google Ventures plans to remain competitive and why it’s structured differently than many other corporate venture arms.

Some of the things that make it unique, according to Krane, are the speed with which it invests, the number of startups in its portfolio (currently about 200, with 80 new investments per year) and its relationship to its parent Google Inc., which funds Google Ventures without regard to whether its investments will benefit Google.

That wall between the parent company and its venture arm means that if Google acquires a Google Ventures company, which happens occasionally, Google Ventures is not involved and may not know about the deal until after it’s over, Krane said.

Investing independently of Google’s corporate strategy gives Google Ventures access to far more entrepreneurs (those who are developing technology for Google’s rival Facebook, for instance) than it would have otherwise, Krane said. Other than a requirement to invest in U.S.-based disruptive technology companies, “I like to believe we have a wide purview.”

Google Ventures’ eight investment partners have carried interest in the venture arm’s funds–meaning they receive a percentage of investment profits as they would if they worked for an independent venture firm–which gives them a financial incentive to see their deals succeed.

Like Andreessen Horowitz, which started at about the same time, Google Ventures offers a lot of resources to its portfolio companies—free on-staff engineers, designers, marketing people, recruiters (although the recruiters hire technical talent because that’s Google’s expertise) and access to Google staff as well as a co-working space on the Google campus called Startup Lab that offers classes. (Some of the lab content is public).

To maintain good relationships with other venture capitalists and boost returns, Google Ventures frequently syndicates its investments, Krane said.

The venture arm was tutored initially by Kleiner Perkins Caufield & Byers’ John Doerr and Sequoia Capital’s Mike Moritz, who were early investors in Google (Doerr is still on the board). Its most frequent investment partners now are Kleiner Perkins, First Round Capital, SV Angel, 500 Startups and Andreessen Horowitz, to which it sometimes loses deals.

Most investments are seed investments because that’s where the big returns are, Krane said, and that’s another challenge for Google Ventures—how to keep investing at the same rate as some of its portfolio companies grow and require follow-on investments, which means more money and sometimes board seats for general partners who are already busy.

Being part of Google, though, Google Ventures evaluates its deal flow with as much data as possible, something that Krane said is still uncommon among venture capitalists, although he expects that to change as more firms hire data scientists in residence.

Google Ventures, he pointed out, has six data scientists on staff.

UPDATE: This post was changed to correct the list of frequent investment partners of Google Ventures. Felicis Ventures is not a frequent partner, the firm says, while Kleiner Perkins is a frequent partner.

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